The Relationship Between Ownership Structure And Audit Fees

According to agency theory, there is some need resulting in audit coming out. It is also determined by companies’internal nature, as a product of the market economy.In another way, the professional manager comes out as an occupation adapting to this need, because the scale of the company becomes bigger, and the business is spreading broader. The shareholder entrusts the manager to manage the company so that he can escape from the area he isn’t good at. However, the shareholder needs to pay for it, but couldn’t know all about the manager. So the agency cost appears. In order to reduce this cost, the shareholder must create some structure to supervise managerial behavior. And then,the board of directors and audit committee were born. Still, those are not enough, because all the above are internal structures, which cannot get a satisfied governance effect. So the use of external audit is very obvious.The most important characteristic of external audit is its independence.This independence indicates the accounting firm should just play its independent third part role in auditing, but not be inclined to any part, the manager or the shareholder. External audit is aimed to reduce agency cost. However, audit itself increase cost. To make the use of audit exist reasonably, the number of the cost reduced must be more than that increased.Sometimes, audit cannot help increase company’s performance but causes total chaos. This begins from agency theory, leads to asymmetric information between governance layer and management layer, or even between the controlling shareholder and other shareholders. Totally, when the ownership structure is decentralized, the management layer masters more information. It can control company’s decision making power in fact. It also controls the whole audit program, leading to damage the interests of the shareholder. When the ownership structure is centralized, the management layer represents the controlling shareholder; they can unite with the accounting firm to damage the interests of other smaller shareholders. As the time goes, company’s governance structure will collapse.Above all, we must find the balance to stop this collapse. Generally, moderate managerial ownership can help ease managerial power problem. And the relatively decentralized ownership will be used to solve the problem between the controlling shareholder and the others. These can improve governance environment, and make the financial report more clearly and finally reduce audit fee.There are many variables affecting audit fee, containing the scale of company asset, the complication of the business and even the risk of audit itself. This paper majorly focuses on ownership structure. It contains managerial ownership, the first major shareholder ownership, State-owned ownership, the sum ownership among the first ten shareholders except the first one and the separation value of the two rights. As the most important position, ownership structure decides who has the final decision making power and affects the whole business activities. The optimization of ownership structure can not only improve governance environment, but also can reduce risk level and decline agency cost at the same time.The paper is divided into five chapters to introduce the influence of ownership structure to audit fee. Chapter One is the preface of this paper, emphasizing on the background and the research signification. Specifically, it includes the major idea, the research methods, the research innovation and deficiency. Chapter Two aims to analyze some basic theories and reviews of the literatures. From analyzing agency theory, management layer power theory, signaling theory and audit theory, we can get some conclusion and even the foundation for the study of this paper. The purpose of Chapter Three is to introduce how to use these research methods, from theory analysis to research hypothesis. Chapter Four is the part of empirical research. First we can get samples from2010to2012from CSMAR database, and then according to certain standard screened there are5706observations left. Finally, we set a model and get the result by linear regression. As to Chapter Five, it is the conclusion of this paper and some suggestions drawn from the result of Chapter Four. I hope the conclusion and advice can provide some direction for future research through this study.